By: Michelle Noth, Head: Financial Intermediaries Channel 10X

At 10X, we recognise that financial advisers are under pressure. Running a successful, independent financial advice practice involves carefully striking a balance between seeing and advising clients, and managing and growing the business. The former is what generally attracts people to the industry. The latter is becoming more challenging due to multiple factors like increased regulation and the need to adopt technology to remain competitive.
“We’re all struggling with the same things when it comes to practice management,” Elke Zeki, director at Foundation Family Wealth, said during a panel discussion at the 10X Think Investing convention 2024. “What’s breaking the camel’s back is the combination of all of them. They take a lot of time and effort. A lot of independent advisers are owner-managed, and that means you end up spending time and energy doing something you are not, typically, good at. I often find that sometimes more than half my time is spent working on the business as opposed to working in the business, and that’s not sustainable.”
Kathryn van Dongen, Group COO of Carmel Wealth, said that the industry needs to find innovative ways to address these challenges. Carmel Wealth’s approach is to invest in a diverse range of reputable, independent practices and offer them quality business support. “The business model is to respect the independence of the advisers as sacrosanct,” Van Dongen said. “We create very tailored solutions based on what a practice needs and how we can help. We do that without comprising independence when it comes to product choice, losing brand identity, or the adviser’s ability to run their own business.” She said that the biggest practice management challenge IFAs encounter is around succession planning.
“I think that’s because it’s really hard to get right,” Van Dongen said. “It can be complicated, take a very long time, and there isn’t a one-size-fits-all solution. Every independent FA practice is like an evolving living organism with different aspirations, and a succession plan needs to be fitted to that specific business. “Most of the options available to solve for succession planning needs haven’t fitted independents very well. The current models tend to rely very much on vertical integration into a larger, product-led organisation, meaning that to find succession or growth capital comes with some form of compromise to independence.”
A second significant issue she has seen is the massive growth in the need for advisers to have proper tech enablement, where one such example is having proper cybersecurity protections in place. “Even really good practices don’t necessarily have good enough cybersecurity infrastructure,” Van Dongen said. “We recently assisted in addressing this for one of the companies 100% owned by Carmel Wealth, and it took significant research to figure out what a good standard and operating model looks like.
“We had to navigate providers, do due diligence on them, negotiate pricing, and implement the solution. The bill came to a few hundred thousand rand, but the cost wasn’t the biggest issue. It was the time involved. When do the leaders of these practices, who are often attracting and retaining clients themselves, find the time to address something as complex as cybersecurity?”
This challenge is precisely why independent firm Galileo Capital made the decision recently to hire an experienced chief operating officer. “For a small business, it’s phenomenally expensive if it’s a good resource, but it’s an investment in the future of the business,” said Warren Ingram, co-founder of Galileo Capital.
Many independent advisers are also finding support from discretionary fund managers (DFMs), who are increasingly offering a range of services beyond their core investment expertise. These including marketing, compliance and technology.
“For us, it is about time and expertise,” Zeki said. “We are very good at building relationships with clients and helping clients understand what their needs are. For us to spend our days understanding funds and doing due diligence on managers is just not conducive to building sustainable business.”
Ingram added that Galileo Capital had shied away from using a DFM for some time because they viewed it as an additional cost to the client. But with DFMs reaching scale and being able to negotiate better fees with managers, that is less the case.
“I think that DFMs are starting to add value,’ Ingram said. ‘The ecosystem they can provide in addition to the pure multi-management function is valuable.”
Van Dongen said that there has clearly been an evolution within the industry, with DFMs now looking to enable advice practices to scale up and be more efficient in the planning process.
“It’s not just investment management anymore,” she said.
DFMs are looking at how they can help practices to thrive.
But what’s important is that those peripheral services shouldn’t come at the cost of the clients’ investment outcomes. Because if a client could get a better investment solution somewhere else, but the practice is getting all the benefits of the DFM’s business support, you have a moral dilemma. How do you replace your DFM if your practice is operationally reliant on them, but your client is not getting what you deem to be the best investment solution for them?
“It’s clear there is an acute need that has been solved. It is so expensive and time consuming to run a practice that doesn’t have scale. Independent advisers need support, and DFMs have offered one way of doing that. But I think we also need to look at innovative options for solving that need in different ways.”
10X Investments takes pride in being a trusted partner to financial advisers, providing low-cost, high-quality funds designed to support their vital work. By offering efficient and reliable investment solutions, 10X empowers advisers to focus on what they do best: guiding their clients toward a secure and prosperous financial future.